Safe from the Losing Fight

As some of the more astute readers might have noticed, the sidebar and about page of this blog have changed to remove references to Order N and their products and services. You might be wondering what that’s all about. I’ve decided to answer your potential questions in FAQ format, in order to sound more pretentious.

So what’s the deal with Order N?

They’re still around, successful, and offering custom development services for the Mac and iOS platforms. However, I sold my shares in the company back in October and I’m no longer part of Order N.

What do you do now?

Mainly sit around in my underwear, playing solitaire.

…uh, anything else?

Sometimes I pet my cats, Luna and Pasha.

Alright, I guess we’re done here.

Wait, before you go, let me tell you about my new company.

You could’ve mentioned that earlier.

And miss out on all the interesting tidbits about Mac indie life?

Anyway, so you have a new company?

Yep, still shiny and everything.

…

…

…anything you want to say about it?

Yeah, it’s going to be awesome, sweet, sick, and possibly jivetastic, if that’s still a word.

I’m not sure that was ever a word. What’s the company going to do?

Be awesome. Gonna have our own tree fort and everything. See:

It’s like Panic’s Founder’s Room, only cooler. I’m also working on the official company super secret handshake, but I can’t think of anything after “patty cake, patty cake, baker’s man.”

Wow, there’s so many things wrong with that, I don’t know where to begin. But I see the company name appears to “Fortunate Bear.” Where does the name come from?

Insomnia induced delirium, and possibly the sheer jivetasticness of myself.

Really?

No, I just randomly matched up adjectives and nouns until I found one I liked the sound of, and my wife wouldn’t divorce me over.

Is Fortunate Bear going to be a software company or what?

Oh, right, software. Yes, software will be involved in the process. I’m not much for playing solitaire with real cards. It’s the reason why the iPad is so magical.

Is the whole FAQ going to be this way? Because there’s a netiquette FAQ I could be hosting.

Alright, fine. Fortunate Bear is a software company focused on creating Mac and iOS apps to sell under the Fortunate Bear brand. I am the sole owner.

What about contracting/freelancing?

I might have to do some in the early years of Fortunate Bear, but it will be kept a bear minimum (see what I did there?) and phased out as soon as possible. I am not currently available for contracting. I’m focusing on building my own products.

What can you tell me about the products you’re working on?

I’m working on a Mac app for window management. It’s like Exposé except it doesn’t suck. I’ll be announcing a beta for it soon.

What about Hearts Attack?

I bought the source and rights for Hearts Attack from Order N. I’m renaming it, adding a few features, and changing the way it will generate money. I’m hoping to release it soon, but not until I get my Mac app out.

How can I get more information about Fortunate Bear and its products?

This blog will continue to be the main place I write and make announcements. However, I have a placeholder site for Fortunate Bear. You can sign up for the company newsletter to get announcements about products as well as tips and tricks after the products are released. There’s also an official Fortunate Bear Twitter account you can follow.

Anything else you want to add?

It’s gonna be jivetastic.

Please shut up.

I’ve already posted the press release for Hearts Attack, but I thought I’d share a little about how Hearts Attack came about.

Way back in 2008 the original iPhone SDK came out, and I, like a lot of people, was excited about developing apps for the iPhone. My company is primarily a software development services company so I was mainly interested in learning the SDK so we could pick up iPhone contracts in addition to Mac ones. It also happens to be the case that my favorite card game is hearts, so I decided a good way to learn the iPhone SDK was to write my own hearts game.

After a couple of weeks I had the basic functionality implemented, and noticed I was playing it a lot. I realized then that I could probably make this into a product. Furthermore, releasing an iPhone app through the App Store seemed like a good way for us as a company to begin making the transition from a services based company to a product based one.

If I was going to release Hearts Attack as a published app, I knew the UI and presentation had to be greatly improved. I went through a lot of mockups for the main playing view, including one where everyone’s cards — all 52 of them — were always visible somewhere on the table (a truly horrible idea). Unfortunately I don’t seem to have most of the mockups around anymore, but I found a couple which you can see below. (See the product page for the end result.)

The biggest challenge I had was fitting everything on the screen and it still being legible and usable. By trial and error I figured out how small I could make the cards and still make them tappable, as well as their optimal position to make them accessible with one hand.

I began thinking about what would make Hearts Attack unique or different from its competitors. Back then there were literally just two iPhone hearts games in the App Store, and I felt pretty confident that what I had was already better than them, but I wanted to be sure. I decided on: oddball talking computer opponents, a tutorial that gave not only card suggestions but the rationale behind the choice (a pet peeve of mine), and multiple undo support for mis-taps and tactical errors.

The last step was to get professionals to do the sound and graphics. I ended up hiring a sound designer, a graphics designer, and a character illustrator. The sound design went smoothly, but getting the graphics done was a lot more involved than I anticipated, which is another story for another day. Jordan of OneToad Design created the app icon, playing backgrounds, and the special card backgrounds for the queen of spades and jack of diamonds. Lara Kehler did the character illustrations, which turned out great.

Unfortunately, Hearts Attack went on hiatus in early 2009. I was working full time on an iPhone contract, and simply didn’t have a lot of time to put into Hearts. Secondly, I had lost all desire in finishing it. It was becoming increasingly apparent that iPhone users didn’t want to pay more than $0.99 for anything, despite all the whining I did about it. I convinced myself it wasn’t worth releasing Hearts because it would never make back the money it cost us to make. Hearts stayed dormant for an entire year.

A couple of months ago, I decided to pick Hearts Attack back up again. I had the time and, as someone pointed out to me, it would never make money if I didn’t release it. I was tempted to update the app to the latest SDK (I started Hearts back before you could even use nibs on the iPhone) and add some features. I decided against this, because I really just wanted to ship it. I did have to update it to the 2.2.1 SDK because the current Xcode tools no longer ship with the 2.0 SDK.

Instead I focused on fixing the bugs and adding polish. Fortunately for me my wife happens to be a professional software tester with iPhone experience, so I got lots of good bugs to fix. I also prepared a press release, created a website, and otherwise got ready for the release. After I felt the app was stable enough, I submitted it to Apple on Friday. It was approved on Monday.

At this point, I’m still not convinced I’ll ever make back the money we spent on sound and graphic designers. A hearts card game simply is never going to be a big seller, and price point isn’t high enough to make up for that. Right now, I’m tending to think pessimistically about sales, but I’m going to do what I can to drum up sales and see how things go.

It’s a “wait and see” situation as to if we develop any more iPhone applications to sell ourselves. Of course, regardless of how well Hearts Attack does, we’d be happy to develop your iPhone app for you.

It’s been about eight years since our company website has had a major redesign. But that changed today.

The old design simply wasn’t meeting our needs. Specifically:

• It didn’t communicate clearly what exactly we do here.
• It had a search box which, as far as I can tell, didn’t, and has never, worked.
• It had several pages describing services we don’t perform, at least not when a cop is around. Some of these pages just had boilerplate text in them. e.g. “Item 1″, “Item 2″, etc
• The visual design was really old and unprofessional. The new is at least not old.
• The old feedback form demanded a lot of extraneous information like title, company, telephone number, home address, when you shower, etc.
• It had a copyright date at the bottom of 2002, which caused people to ask: “Are you guys still in business?” This was apparently a barrier to them sending us money.

Fortunately, we mainly rely on word of mouth to get clients, but a bad website certainly doesn’t help our business. We could be missing out on clients who find our website, but don’t contact us for any of the reasons listed above.

I’ve recently had some time between contracts, which I used to think about how a software contractor’s website should be structured and what kind of information it should present. Also, I slept in late a lot. I came to some conclusions:

• It should immediately obvious to a visitor what the company does, no matter what page they land on.
• It should have a portfolio so the visitor can see what kind of work we have done in the past, and see if that matches up with what they want done at the quality level they want.
• A brief description of services that we do provide, explained in layman’s terms.
• It should be obvious and easy to get in touch with us. The form for submitting a message should have as few requirements as possible.
• It should contain a brief overview of the company, and the people in it. It should put a human face to the company.
• Noon really is not a bad time to wake up.

I also decided to add a page for products, mainly for future use.

Overall the project was a fun — and hopefully financially rewarding — exercise. It was interesting to think about what would induce a visitor to stick around on our site, and then actually contact us. I’m not sure if I got it completely right, but it’s at least a step in the right direction.

In preparation for C4[3], Wolf has put up videos of the talks from C4[2], including the one I did on contracting. Hopefully someone will find it useful.

I’m always told to start a speech with a good story, so I assume you’re supposed to start a blog entry with a bad story.

The Parable of Little Timmy

Little Timmy was a developer at BigCoSoft, but he dreamed of working for himself one day with a product of his very own. When the iPhone SDK came out, he set aside all his free time and slaved over a new iPhone application for months.

When it came to pricing his software, he decided to sell it for the lowest possible price, $0.99, because that’s what everyone else was doing and besides he’d make it all up in volume, whatever that meant. Plus, he already had 12 year old boys yelling at him because the software wasn’t free, and he’d hate to upset anyone.

Unfortunately Little Timmy couldn’t live on $4,000 a year, so he died. BigCoSoft cremated his body in their furnace so they could save $14.67 on their heating bill.

The End.

I realize that some of my readers are engineers, and prefer cold hard facts. So for you my friend, some math problems:

Question 1:	Assume Little Timmy could live off of $50,000/year, before taxes (Note: this means you have to assume Timmy doesn’t live in California, New York, or any big city, but in a farmer’s wheat field in some desolate corner of Iowa.) How many copies of his product would Little Timmy need to sell to eat?
Answer:	Since Little Timmy only priced his software at $0.99 and Apple takes 30%, Timmy only makes about $0.70 per copy. He would need to sell 71,428 copies a year or 196 copies a day.

Question 2:	How many copies a day should Timmy expect to sell, after the initial launch?
Answer:	16

Question 3:	Isn’t Little Timmy just about the biggest moron you’ve ever heard of?
Answer:	haha! Yes!

So now that we’ve finished mocking poor Timmy’s corpse, we should talk about how to price your application before you become firewood.

The Problem

The problem that you’re likely to have, like most developers, is setting a price that you can live on. The temptation will be to price your app too low, such that developing the application isn’t sustainable. You might have the best of intentions, but in the end you’ll cause the premature death of your business before it even gets a chance.

So why might you be tempted to price your iPhone application so low?

Reason #1: Initial store prices

A lot of people were looking at the apps announced at WWDC to see what they would be priced at. In particular Sega’s Super Monkey Ball, priced at $9.99, seemed to receive the most attention. Developers releasing around the App Store launch seemed to use Super Monkey Ball as a barometer as to how to price their app. Unfortunately, most of them seemed to think they needed to beat Sega’s price.

Here’s the thing: engaging Sega in a price war is a sure fire loss. They’re a bigger company with deep pockets and will always be able to undercut you in price. They don’t need make much, if any, profit on their iPhone game, since they have a lot of other products. You, on the other hand, need to make a profit on your iPhone app, and a big enough one to live off of.

Reason #2: Customer expectations

Sega’s initial pricing, and the subsequent following suit of just about everyone else, set customer expectations for iPhone app prices. Developers entering the market in the following months felt compelled to follow the example of the first developers. These feelings were only reinforced by just about every “customer survey” done by TUAW and other bloggers, in which potential “customers” said they wouldn’t ever pay more than $5 for an iPhone application, although they really didn’t understand why those greedy developers felt they needed to charge anything. After all, they could make it up volume.

Unfortunately the blame for setting customer expectations falls squarely on developers. Developers get to set the price, and thus the expectations. By setting the price expectations so low, you are lying to your customers. You are saying “I can sustain development of this app for this price,” when in fact, you can’t. It’s dishonest, and it will kill your business.

Reason #3: Gaming the system

By far the biggest reason why developers price their apps so low is to game the App Store. Applications are sorted by how many copies they have sold. It doesn’t take a rocket scientist to figure out that the lower the price, the more copies an app will sell. The top 100 applications sell tons of copies, while applications outside that top 100 seem to wither away unnoticed. So in order to get more exposure, developers price their applications as low as they can.

The problem is that this scheme only supports 100 applications. Everyone else is hosed. Unless you can get and stay in the top 100, then lowering your price was for nothing.

It is likely that Apple will fix this hole. They want to make money too. For a $0.99 app, Apple is only making $0.30 per copy, which has to cover bandwidth, transaction fees, and advertising. I’m not suggesting Apple isn’t making money off $0.99 apps, but I am saying they’d probably prefer to be selling $9.99 apps.

Reason #4: Short term vision

The App Store is quite young and with all the hype and exposure a few of the first developers struck it rich. This isn’t unexpected for some of the pioneers, but the problem has became that many developers enter the iPhone app market thinking that they too can become fabulously wealthy, just as soon as they release their flashlight app that also doubles as tip calculator.

The problem here is that developers become focused on making money now, instead of nurturing and building up a loyal customer base over the long term. They price their app low so they sell a lot of copies now, but don’t consider how they’re going to make money next year. What is the upgrade price that you charge for a $0.99 app? If it’s $0.99 then you’re not building customer loyalty because that’s not a discount. If it’s free, then you’re totally screwed, because you’re not making any money.

The Solution: $9.99 is the new $0.99

The fix for pricing too low is really simple: raise your prices. Most $0.99 apps should become $9.99, $4.99 apps should become $14.99, and so on. With a $9.99 app, you’d make $7 per copy and at 16 copies per day, you’d make about $40,000/year. That’s not a great income, but that could potentially support one iPhone product being developed in some Iowan’s wheat field.

Without question there will be customer backlash when developers increase their prices. Nobody likes paying more for something. However, the sooner the righting of the ship happens, the better. Customers need to know that most applications can’t be built and supported for such a small amount of money.

On the other side of the equation, developers aren’t going to be eager to be the first to raise their prices. So many are convinced that they won’t sell anything if they raise their prices. Here are some of the potential concerns:

Myth #1: No one will find my app!

This goes back to developers gaming the system. If a developer raises their price, they will sell fewer copies and drop off the top 100, which means no potential customers will find them. There are two possible solutions to this problem.

The first is Apple could fix it so applications that are not on the top 100 are easier to find. It may take a while for Apple to implement this, but eventually Apple will because it’s in their best interest. When this happens it won’t matter what the price of the app is, people will be able to find it.

The second possible solution is to do advertising for the application. This will take some trail and error to figure out where to buy ads at or which adwords to buy, but it can definitely be made to work. Advertising is hard for $0.99 applications, because if you spend more than $0.70 per conversion, then you’ve lost money. In other words, if you charge more you can make sure more people see your app.

Myth #2: But those other people sell it for less!

Competing with another application solely on price is a sure fire way to go out of business. Your product should have a selling point other than the price, whether it be more features, better usability, a unique approach to the problem or all of the above.

There will always be students and hobbyists in the market who can sell a competing product for way less than you. They don’t need to make a living off the app, so they’re not trying to. This happens all the time in the Mac market. If you charge enough for your app that you can make living off it, then you can spend all your time improving it. With that extra time you should be able to make a superior product to your lower priced competitors.

People are willing to pay more for superior products. Unfortunately, with the App Store developers haven’t given them the opportunity to do so.

Myth #3: This is the price the market will bear

Another way to say this is: the price of application is what the market is willing to pay.
I don’t dispute this, but there is another side to this equation.

You also need to consider what the price of building and supporting the application is. If the cost of building the app is greater than what the market is willing to pay, then simply don’t build the app because it will be a failure. Building the application regardless is dishonest to the customer, because you’re in effect selling them what you know will be abandonware.

I also contend that, in general, developers don’t know what the market will bear because no one’s really pushed the price. Everyone is currently in a race to the bottom. The App Store is still in it’s infancy, so no one’s had time to tell if raising prices actually kills the application, or if it just means it takes longer for it to take off.

Myth #4: I can make it up in volume!

I’m astounded at the number of developers who believe that this is true. While it is true that some developers have made a lot of money this way, this isn’t sustainable or practical for most applications. In order to make up for the low price in quantity your product needs to have mass appeal. Furthermore, your potential customers have to be able to find your product, which means you have to be in the top 100 and have Apple feature your product in their advertisements. In other words, you’re betting a lot of this on luck, and the odds are stacked against you. You’d have better odds playing slots at a casino.

Judgement Day

The App Store can’t stay at the status quo. There are three possible outcomes:

1. The App Store becomes a market place solely for hobbyists and students, who can price their wares low because they don’t need to make a living off of them. In this scenario, indie developers aren’t in the market anymore and there is only the occasional BigCoSoft game port.

   Eventually this market would become littered with abandonware as hobbyists and students moved on to other projects that actually pay. The occasional BigCoSoft game would keep the iPhone as a second rate gaming platform.

2. The App Store becomes a market for one off apps and abandonware, where apps don’t progress beyond version 1.0 because there’s no money in it. Apps are simple and cheap to build, and developers rely on the initial sales spike to make all their money.

   The store would become so littered with dead apps that falling off the top 100 would be even more fatal. Eventually the store would die as developers ran out of simple app ideas that would generate a sales spike.

3. Developers begin pricing their products in a way that is sustainable. Developers who price too low eventually die off, unable to develop their products further. In this market, prices go up, which encourages indies and BigCoSoft to build and release many apps and games for the iPhone.

There will be an iPhone app bust. The current prices simply aren’t sustainable. Either developers will crash out of the market when they discover they can’t make a living off their current prices, or the gold rush developers will lose interest and leave when they realize they can’t make a quick buck off the store. The developers left standing will be the ones who set reasonable prices for their applications.

I’m willing to put my money where my mouth is. I currently have an iPhone app in development, and when it comes out, I will price it $9.99 or higher. I’ll let you know how it goes for me.